Republicans Backing Away from Debt Ceiling Brinksmanship

… to Hold Line on Sequestration and Budget – published on naked capitalism, by Yves Smith, Jan 17, 2013.

A important shift in the Republicans’ negotiating stance over the austerity fight (do we go Dem lite or Republican high test?) was duly noted in the Financial Times a day ago, but a search in Google News (“debt ceiling”) suggests a lot of other commentators have not yet digested its significance, so it seemed worthy of a short recap here.  

Although extremism and brinksmanship have become preferred negotiating tactics of the Republicans, the most relentless practitioners are under the sway of libertarian funders and stealth organizers, primarily the Koch brothers, and intellectual leaders (not quite an oxymnoron) like Grover Norquist. In the new year, some elements of the Republican party have been taking more and more extreme positions, even saying that defaulting on US Treasuries would be a good idea, hewing to the “execution at dawn focuses the mind” school of thought.

Although financial markets didn’t yet take that bluster seriously, if it went on any length of time, they might have. Fitch bothered sending a warning shot, effectively indicating they regarded this sort of talk as bluster, but if anyone got serious, they’d review US debt ratings. The reason that was significant isn’t so much that it would affect bond yields (the Fed has been keeping a lid on them of late) but that the possibility of a downgrade by a second rating agency could widen repo haircuts on Treasuries and government guaranteed bonds, and the effects would ripple through the entire financial system … //

… Now that does not mean that all Tea Party members will abandon the debt ceiling hostage taking approach, but with the Kochs herding the most recalcitrant members into line, the battle line is shifting away from the debt ceiling (oh, there will be posturing, but a deal will get done) to the sequester (which kicks in March 1 unless no new agreement is reached) and the budget (end of March, which would lead to a shutdown if no pact is in place, but bills would continue to be paid, unlike running into debt ceiling constraints). The current fallback hoped for by more aggressive Republicans is to tie any debt ceiling raises to spending cuts (difficult to see how that could be agreed in enough detail to work by mid February, even if the Democrats were willing to play ball) and or only raise the debt ceiling enough to accommodate debt service (no way would Senate Democrats agree). So effectively the complexity of the bargaining has been reduced and the first difficult deadline is not the as early as mid February debt ceiling limit but the beginning of March sequester. In other words, the parties are steadily moving towards negotiating, as opposed to engaging in theatrics.

As unpleasant as this scheming is to follow, remember that lulling the public into “wake me when this is over” works to the plutocrats’ advantage. So don’t change the dial when the austerity debate comes on.

(full text with hyperlinks).

Links:

Russian ombudsman supports creation of state agency for orphans, on Russia Today RT, Jan 17, 2013;

Delhi gang-rape: suspects in fatal attack on student to go to fast-track court: Trial of five men accused of Delhi bus attack to be held in courts designed to avoid corruption plaguing India’s legal system, on The Guardian, Jan 17, 2013;

Belfast is burning while we harp on about horsemeat: The loyalists’ rolling riot is a reminder of the dangers of complacency in the face of widespread alienation, on The Guardian, by Michael White, January 16, 2013;

New Keynesians, price stickiness and involuntary unemployment (wonkish)
, on REal-World Ecpmp,oc Review Blog, by Lars Syll, Jan 16, 2013;

wonkish:

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